Replication and Evaluation of Fund of Hedge Funds Returns

Abstract:     
In this paper we use the hedge fund return replication technique recently introduced in Kat and Palaro (2005) to evaluate the net-of-fee performance of 485 funds of hedge funds. The results indicate that the majority of funds of funds have not provided their investors with returns, which they could not have generated themselves by trading S&P 500, T-bond and Eurodollar futures. Purely in terms of returns therefore, most funds of hedge funds have failed to add value.

Number of Pages in PDF File: 24

Keywords: Hedge funds, fund of funds, return replication, performance evaluation, copula, alpha

JEL Classification: G11, G23

working papers series